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Mountain View, Calif.-based Google
GOOG, +0.48%
reported first-quarter net income of $592 million, or $1.95 a share, up from $369 million or $1.29 a share a year earlier. The results include stock-option costs and other expenses. Analysts expected Google to earn $1.75 a share.

Shares closed up 5.3% to $437.10 after trading as high as $450.72 in early action. The stock has risen more than 20% since hitting an intraday low of $331 on March 10.

Many analysts raised their estimates and price targets accordingly, following the news.

Goldman Sachs analyst Anthony Noto raised his 2006 earnings estimate to $9.39 from $8.87 a share and his 2007 earnings forecast to $12.70 from $11.85 a share. Noto also bumped his 12-month price target to $525.

Stifel Nicolaus analyst Scott Devitt raised his price to $500 from $435. Mark Mahaney, an analyst at Citigroup, reset his target to $550 from $490.

Strong sales overseas, owned properties

Google's revenue grew 79% to $2.25 billion in the quarter, a pace that far exceeds the rate of growth by the other major Internet companies.

Google derives advertising revenue from marketers that bid to place their ads on the search engine's properties, as well as on Google's partner sites.

Notably, sales from Google's own properties grew at 97% as the company continues to attract users to its search engine and other popular services, such as its blog-hosting service, new video store and email and instant-messaging services.

As of the end of the March quarter, Google derived 58% of its sales from paid search advertisements on its own Web sites. It generated another 41% from its distribution partners, which include content sites and other search engines.

Sales from this third-party ad network, meanwhile, grew at 59% as Google renewed and signed new contracts with distribution partners, such as the Washington Post. New publishers participating in Google's AdSense for Content program were "significant" in driving sales growth, said Google Chief Financial Officer George Reyes.

Google's sales from international operations rose 91% to $936 million and now account for 42% of total sales vs. 39% of total revenue in the same period a year ago. Sales from the United Kingdom accounted for 15% of total sales.

Chief Executive Eric Schmidt called international sales "very, very strong."

Margin efficiency, higher capex

Google handily beat sales estimates while not sacrificing margins, according to Goldman's Noto, who estimated that cash-flow margin came in at a better than expected 65.5%. The analyst expects Google to maintain margins at 64% for the full year.

The company also beefed up its team by adding 1,110 employees in the quarter, expanding its work force by 20% to 6,790. That's the biggest quarterly increase at Google, said UBS analyst Ben Schachter.

Schachter also observed that Google's executives said that capital expenditures "should grow faster than revenue" this year. Accordingly, he raised his estimates for capital expenditures in 2006 to $1.4 billion from $1 billion.

Google's increased spending in technology and talent is paying off against its rivals. Search sales grew faster than Yahoo's revenue from search, analysts said.

On a sequential basis, Google grew its revenue by 19%, or more than twice as quickly as the estimated 9% to 10% sequential growth rate that analysts estimate Yahoo's search revenue grew in the same period.

Google controls 49% of the market for Internet searches and has been gaining market share against competitors like Yahoo and Microsoft Corp.'s
MSFT, -0.71%
MSN service, according to data provided by Nielsen NetRatings.

As its share of that market grows, Google is capturing a greater portion of online-advertising spending.

"Our own internal estimates show that we're gaining share in all of our key markets in the United States, United Kingdom and newer markets like India," Schmidt said on a conference call following the report.

Outlook

Google doesn't provide forecasts.

Wall Street analysts expect Google will earn $2.06 a share on sales of $1.58 billion in the second quarter.

For the full year, analysts expect Google to earn $8.74 a share, up 53% from a year earlier, on sales of $6.7 billion, a rise of 68%.

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